The following facts apply to a convertible bond making semiannual payments:

Conversion price ....................................... $37/share
Coupon rate ......................................................... 2.6%
Par value .......................................................... $1,000
Yield on nonconvertible debentures
of same quality ..................................................... 5%
Maturity ........................................................... 25 years
Market price of stock ................................... $34/share

a. What is the minimum price at which the convertible should sell?

b. What accounts for the premium of the market price of a convertible bond over the total market value of the common stock into which it can be converted?